Financial Update by Maurice Soussé

Big news this week as the FED announced their decision to taper its monthly bond purchases. Currently the FED has been purchasing $85 billion per month in bond offerings. This will taper to $75 Billion per month. Keep this in proportion…..$75 Billion per month is a HUGE amount of economic stimulus by the FED. They also committed to keeping rates down through the next year. There are several ways the FED can keep rates down. The purchase of bonds is only one of the tricks up their sleeve.

If you remember back in May, Chairman Bernanke talked about a taper which sent the market into a tail spin and interest rates rose by .375% in a matter of hours. We are Rates are up approximately 1% from that time. What the FED says is often more important than what the FED does. Our rates went up in May and June based on what WILL be happening in the future versus what did happen….which was nothing at the time. Fast forward seven months later and the FED is actually going to slow it’s stimulus. Our rates ended up about an .125% higher from last week which is a minor jump on such big news. The market had already built in and anticipated this news.

The question is what would have happened if the FED didn’t announce a taper? Markets don’t like uncertainty. This guidance provides a clear direction of where the FED, and rates, are going. I surveyed several secondary market associates and they see interest rates hovering between 4.5 to 5% over the next year. In the scheme of things, these are still very low rates.

We have two quotes this week as I just couldn’t resist. The first is from funny man Jay Leno who said “The Supreme Court has ruled they cannot have a nativity scene in Washington, D.C. This wasn’t for any religious reasons. They couldn’t find three wise men and a virgin. Sorry…I just couldn’t resist. As you go into a stressful week which often happens when the family gets together, breathe and think of this quote by Caroline Kennedy who said “It’s true, Christmas can feel a lot like work, particularly for Mothers. But when you look back on all the Christmases in your life, you’ll find you’ve created family traditions and lasting memories. Those memories, good and bad, are really what help to keep a family together over the long haul”.

May you and your family have a very Merry Christmas.